An effective debt management solution for South Africans 

If you are struggling to manage and repay your debt, you need to adopt an effective solution as soon as possible; debt consolidation can help you take control of your debts and finances quickly and easily.

It involves combining all outstanding balances on personal loans and credit cards into one account. In this way, you will be able to make a single smaller monthly payment, save money and lower your risk of defaulting.

The main goal is to get a lower interest rate on the single consolidation loan than you would be paying on interest across all your smaller loans. 

Consolidating debt using credit cards

One of the major benefits of debt consolidation is that it is flexible. It can be done in different ways so as to suit the needs of borrowers precisely. One of the simplest techniques involves the use of a 0% interest credit card. You can transfer all of your outstanding credit card balances to this card so that you can automatically eliminate the interest payments. You will achieve the highest possible savings by repaying your debt in full before the 0% interest period expires.

Using home equity loan to consolidate debt

Another popular and effective strategy involves the use of a home equity loan for debt consolidation. You can transfer the balances on all of your current personal loans and lines of credit to your home loan balance or to a new home equity loan. That way, you will pay a much lower interest which is typically for the secured loans. You will have smaller monthly payments and save money. The only drawback is that if you default on the secured loan, your house may be repossessed.

Is debt consolidation right for me?

If you're experiencing serious difficulties repaying your debt and are accumulating more debt, you should turn to a specialist immediately. A debt counsellor or a specialised financial advisor will be able to provide the professional assistance which you require. The specialist will determine your current financial position and prepare an effective strategy for you to get out of debt.

Applying for a debt consolidation loan 

You should make your online loan application for a debt consolidation loan right away after finding the right type of product for you. You will still have to undergo a credit check to ensure that you qualify. The lender will look into your income and monthly expenses to confirm that you will have sufficient amount of money left for the repayment of the loan. You should be absolutely certain about the loan which you are applying for as making more than one application can cause considerable damage to your credit score.

If you're already blacklisted – you will need to seek information on obtaining a bad credit loan.

1. Do I qualify for debt consolidation?

You will have the best chances of approval for a debt consolidation loan if the income you have left after covering your monthly expenses exceeds the monthly installment on the loan. That way, the risk to the lender is much lower. Similarly, your credit history must be acceptable. People with bad credit or those that are blacklisted have a lower chance of getting approved. At the same time, most lenders are willing to approve applicants with a few blemishes on their credit record as long as they have been diligent borrowers otherwise.

If you have one or two late payments, for instance, you can expect to qualify for a debt consolidation loan but may have to offer some form of collateral to secure the loan. This is eve more so for those who have a large sum of debt in the form of short-term loans and outstanding credit card balances. 

2. Debt consolidation mistakes to avoid

All debt consolidation loans come with closing costs, which you will have to pay out of your pocket. Usually, they are calculated as a percentage of the total loan amount. It is a mistake not to plan for the payment of these costs. It is best if you prepare the money in advance or notify the lender that these costs must be included in the loan amount if you have no other choice. 

Does the loan suit your needs?

It is a mistake to accept loan terms which do not actually suit your financial circumstances, needs and goals. There is no point in consolidating your debt just to keep struggling to make that larger monthly payment. The best strategy to adopt is to negotiate the terms of the loan so that is suits you. Most lenders are more open to negotiation than you think, especially when the demand for their credit products is fairly low. You can readily bargain for a lower interest rate, smaller monthly payments and a more flexible repayment structure.

3. Get professional help with debt

Before you apply for a debt consolidation loan, you must determine how much you owe currently, how much you will need to borrow and how you will repay the new loan. This is very difficult with someone who is not versed in finance and the risk of making a mistake is high. This is why you will benefit greatly from using the services of a credit counsellor.

Find a South African debt specialist 

The specialist will recommend the most effective method for debt consolidation in your case and will help you devise a precise plan for the repayment of the new loan so that you do not have to struggle with your finances.

The credit counsellor or financial planner will assist you in finding the most affordable consolidation loan and make sure that the repayments are tailored to your budget. This ensures that you will be able to get out of debt without excessive struggle.